This article first appeared at The McAlvany Intelligence Advisor on Wednesday, June 4, 2014:
When software inventor and now venture capitalist Marc Andreessen looked at investing in Uber just after its launch, he said “Uber is the software [app that] eats taxis.” At the end of its fourth year, Uber is not only eating taxis, but providing thousands of new jobs for people every month. Last week Uber’s founder, Travis Kalanick said:
Just four years ago we set out to build a better option for people to move around cities: to make getting a ride safer, easier and affordable.
But Uber’s positive impact goes further. Hundreds of thousands of entrepreneurs are using the platform to build their own small business, resulting in a huge job growth engine….
The first rule to making a startup successful is to determine precisely and exactly who its customers are. With Uber, it’s both the customer needing a lift, and the driver providing it. The service is predicated on a simple premise: people need to get somewhere and they don’t want a hassle. They want it cheap and they want it fast. If they get more than that, so much the better.
Putting it in place has taken years. Uber started as UberCab by a couple of college buddies, Garrett Camp and Travis Kalanick, back in 2009, but it didn’t hit the streets of San Francisco until June 2010. Now that it’s getting traction, it’s also getting funding. In 2011, it received $11.5 million from Benchmark Capital and another $32 million later that year from Goldman Sachs, Menlo Ventures, and Jeff Bezos.
It’s also getting pushback from the taxi cartels and regulators, so it must be doing something right.
When economist Mark Perry’s plane arrived at Reagan National Airport late Tuesday night, May 27, it sat on the runway for another hour and a half waiting for a gate to open. When he finally deplaned at 12:30 a.m., he just wanted to get home and go to bed. But so did everyone else:
I went to get a taxi and the line was so long, and wrapped around so many times, that I couldn’t even figure out where the end of the line was – there must have been something like 500-600 people in line waiting for a taxi.
I tried the Metro, but it closes at midnight on weekdays. Facing at least an hour wait until about 2 a.m. for a taxi, I ordered an Uber black car, and it arrived to pick me up in about two minutes.
What a great feeling of relief and satisfaction to leave the 500+ line of people waiting for a taxi, and get into an Uber black car. The Uber fare with taxes, airport fees, and tip was only $32, just slightly higher than what I usually pay for a taxi – about $25-26 with tip.
Thanks to Uber, I was sound asleep in my own bed by 1:30 a.m. instead of still being in line at Reagan waiting for a taxi….
I love Uber!
So does Reagan Rucker, a single mom living near Washington, DC who had been out of work for three years before discovering the Uber opportunity. A friend took her to run some errands, using her smartphone to arrange the ride. Rucker saw her chance. She applied for a driver position at Uber.com, and, after passing both the background and driving record checks and paying a $100 deposit for the Uber software for her car, she was good to go.
In the next three weeks Rucker racked up 51.5 hours driving fares around Washington, and Uber deposited $1,280 into her account automatically. And that didn’t count tips. A conservative estimate is that she went from zero to $25 an hour in just three weeks.
In Denver, Brittany Cameron, a driver for one of Uber’s competitors, Lyft, uses her Jeep mostly on weekends to transport other millennials like herself to various nightclubs and hot spots. She gets more than just pocket change – often taking two or three fares every hour – but she also enjoys the company:
I’m just a little part of everyone’s night. It’s been fun, [joining in] on topics of conversation and [enjoying] the energy of people as they’re going out on a Friday or Saturday.
Their anxiety about allowing strangers into their personal autos has virtually disappeared, partly because both the customer and the driver know a lot about each other. Thanks to the feedback systems built into the software, each party can rate the other. When either party is determined to be a risk, they are neatly eliminated from the system: the customers will request a different driver while a driver will refuse to take a call.
But that rarely happens. The customer must pay for the ride by a valid credit card with appropriate ID, thus avoiding having the driver deal with cash. Said Rucker:
I feel very safe. They have a record of everyone who gets into my car and everything that goes on.
There are other side benefits, too. Cab crime in Chicago dropped by 20 percent once Uber entered the market. Since 2001, Chicago has sported a cab crime rate of one per day but that number is dropping as more and more customers are calling Uber or one of its competitors for a ride instead of a taxi.
Ride-sharing companies are also cheaper than taxis. Significantly cheaper. For example, a trip by taxi from Beverly Hills to Santa Monica costs about $26.80, while Uber charges only $15.83. In San Francisco, a trip from Marina to the financial district costs $14.70 by taxi, but just $10.35 by Uber. From Beacon Hill in Boston to Harvard Square, a taxi costs $19.37, but Uber charges only $12.55. Across the country, Uber costs about 25 percent less than taxis.
In addition, DUI rates drop when a ride-sharing service like Uber enters the market. In Seattle and San Francisco, Uber noted a drop of more than 10 percent. Said the company, “potential drunk drivers will choose other options, like rides with Uber, when they are convenient, affordable, and readily available.”
All of which is making customers and drivers and the companies happy. Everyone, that is, except the regulators. In Denver, for instance, there is legislation pending to broaden regulators’ responsibilities to include “transportation network companies” so that they will come under the regulatory thumb of Doug Dean, director of the Colorado Public Utilities Commission. His rules concerning taxis and their drivers presently include defining limited territories, demanding that they pick up any and every individual requesting a ride, and, oh yes, fixing their rates.
If the legislature doesn’t come through, Dean is ready to act on his own:
If the legislation fails, we will go out there and start issuing civil penalties and fines and put these services out of business.
It’s not our first choice, it’s just what we’ll have to do.
While Dean needs to have his bottle corked, the revolution continues elsewhere. In San Francisco, taxi and limo companies have already lost a third of their drivers moving to Uber, Lyft, and other ride-sharing companies. This relieves them of having to pay vehicle lease fees to their employers that often range upwards of $100 a day, often making it hard for drivers to make a living wage. When they move to Uber, they get to use their own cars, pay for their own insurance and vehicle maintenance, and give up 20 percent to Uber for the privilege. But they still make out much better.
Ali Vazir, a Denver Uber driver, used to work for Yellow Cab and, before that, for Metro. His weekly lease payments ranged from $400 to $600. Although he now drives his own car and has to pay for Uber’s software plus their 20 percent take, he now brings home more money, has more flexible hours, and he drives a nicer car as well: “I feel emancipated. I’m so much happier, and my passengers are happier, too.”
That’s how it’s supposed to work: the customers are happier, the drivers are happier, the companies are profitable, the service is better and often cheaper. Despite threats by regulatory thugs like Dean, this is a revolution that has legs. It’s another example of how the free market works when it is left to its own devices.
Mark Perry: Top 10 Uber facts
Mark Perry: My story about Uber
Uber: Uber vs. Taxis
Denver Business Journal: Cover story: Will ride-sharing apps be the death of taxis?